(Agencies/chinadaily.com.cn)
Updated: 2007-10-21 09:36

Leading financial officials of the world’s developed countries said that order was returning to financial markets but warned of lingering instability likely to dampen world economic growth.

Representing Britain, Canada, France, Germany, Italy, Japan and the United States, G-7 ministers convened on the 20th anniversary of the Wall Street stock market crash, and US Treasury Secretary Henry Paulson said today's financial market upheavals were very much on their minds.

While the global economy is now in the fifth year of robust momentum, "recent financial market turbulence, high oil prices, and weakness in the US housing sector will likely moderate this growth," the ministers and central bankers warned in a statement.

They noted that the functioning of financial markets was improving after having been rocked by a credit crisis, a byproduct of the meltdown in the U.S. subprime -- or high-risk -- mortgage market.

"Strong global fundamentals and well-capitalized financial institutions provide a sound and resilient basis but uneven conditions are likely to persist for some time and will require close monitoring," the ministers said.

The meeting in addition called for action to prevent future turmoil, stressing that market players had to police themselves. "We expect market participants to address many of the shortcomings that were exposed by recent events," the statement said.

The G7 put forward no proposals of its own to improve market operations, preferring instead to await a report from another body, the Financial Stability Forum, that is expected in April.

The United States has come under criticism for allowing loose lending practices to flourish in a climate of low interest rates, which fueled a years-long housing boom, speculation and the emergence of little-understood complex financial instruments backed by mortgages.

The real estate bubble burst last year, triggering loan defaults and foreclosures as well as a credit crunch that spread worldwide, roiling major markets in August.

"Our response to recent financial turbulence must be based on full analysis of its causes," the G7 finance chiefs said.

Meanwhile, G-7 financial ministers in its closely scrutinized communique said it welcomed steps by China to increase the flexibility of its currency, the yuan. It added: "In view of its rising current account surplus and domestic inflation we stress its need to allow an accelerated appreciation of its effective exchange rate."

The United States and several of its trading partners have repeatedly urged China to adopt a more flexible currency regime.

Deputy governor of the Chinese central bank Wu Xiaoling said to reporters that Beijing was indeed moving to reform its exchange rate mechanism.

Wu also spoke of Beijing’s concerns: "Moving the exchange rates in the absence of economic restructuring policies will hurt China. Since China is one of the driving forces of the global economy, this will accordingly hurt the global economy.”

“Therefore China's authorities decided to reform the foreign exchange regime in a controlled manner on its own initiative and in a gradual fashion,” Wu said.

The G-7 ministers made no mention in their final statement of the steadily eroding dollar, notably against the euro.

The greenback on Friday plunged to an historic low as they euro rose to a record 1.4319 dollars, largely on fears for the continued good health of the US economy in the face of surging oil prices.